olvency Analysis
The following information is available from the balance sheetsat the ends of the two most recent years and the income statementfor the most recent year of Impact Company:
| | December 31 | | |
| | 2017 | | 2016 |
| Accounts payable | | $ 65,000 | | $ 50,000 |
| Accrued liabilities | | 25,000 | | 35,000 |
| Taxes payable | | 60,000 | | 45,000 |
| Short-term notes payable | | 0 | | 75,000 |
| Bonds payable due within next year | | 200,000 | | 200,000 |
| Total current liabilities | | $ 350,000 | | $ 405,000 |
| Bonds payable | | $ 600,000 | | $ 800,000 |
| Common stock, $10 par | | $1,000,000 | | $1,000,000 |
| Retained earnings | | 650,000 | | 500,000 |
| Total stockholders’ equity | | $1,650,000 | | $1,500,000 |
| Total liabilities and stockholders’ equity | | $2,600,000 | | $2,705,000 |
| | 2017 |
| Sales revenue | | $1,600,000 |
| Cost of goods sold | | 950,000 |
| Gross profit | | $ 650,000 |
| Selling and administrative expense | | 300,000 |
| Operating income | | $ 350,000 |
| Interest expense | | 89,000 |
| Income before tax | | $ 261,000 |
| Income tax expense | | 111,000 |
| Net income | | $ 150,000 |
Other Information:
- Short-term notes payable represents a 12-month loan thatmatured in November 2017. Interest of 12% was paid atmaturity.
- One million dollars of serial bonds had been issued ten yearsearlier. The first series of $200,000 matured at the end of 2017,with interest of 8% payable annually.
- Cash flow from operations was $185,000 in 2017. The amounts ofinterest and taxes paid during 2017 were $89,000 and $96,000,respectively.
Required:
1. Compute the following for Impact Company.Round your answers to two decimal places.
| 2017 | 2016 |
| a. The debt-to-equity ratio at December 31, 2017, and December31, 2016 | | to 1 | | to 1 |
| b. The times interest earned ratio for 2017 | | to 1 | | |
| c. The debt service coverage ratio for 2017 | | times |
